AFSC Pricing: Year in Review
Commodity markets in 2018 reminded us how connected the world is, and reinforced the significance of food to people and their governments. The year was largely characterized by trade agreements, trade barriers and weather phenomena on both local and global scales.
The effects were apparent, as a number of crops in the AFSC AgriInsurance program triggered the Variable Price Benefit (VPB) or Spring Price Endorsement (SPE), products that cover significant price movements in Alberta’s AgriInsurance Program.
AFSC offers two mechanisms to account for significant spring to fall price movements. The Spring Price Endorsement (SPE) is an optional endorsement to Production Insurance covering declines greater than 10 per cent. The Variable Price Benefit covers price increases of more than 10% spring to fall in the event of a production loss. VPB is included as a benefit to Production Insurance coverage.
Tariffs and non-tariff barriers threw a wrench into the buying patterns of large importers of Canadian agricultural products like China and India and have caused some major redistribution of global trade patterns. For example, the U.S.–China trade dispute has shifted Chinese soybean purchases toward South American exporters like Brazil. With a bit of downward pressure on yellow field pea prices from Indian pulse tariffs and fewer soybean purchasing opportunities, China bought more Canadian field peas this year that may have otherwise been purchased by India.
Chinese purchases and healthy feed pea prices helped steady prices for sellers in the human consumption market and commercial field peas did not trigger SPE or VPB in 2018.
Red and green lentils as well as Desi and Kabuli chickpeas had a different experience than field peas this year, all triggering SPE with significant price declines from spring to fall. Fewer outlets for exporters and good domestic production were contributing factors. Chickpeas were a tempting crop to plant in 2018 with low field pea prices and high chickpea prices, which have been on an especially wild ride experiencing a ten-year high and a ten-year low price in the span of a single year.
Smaller importing nations of Canadian products also had an impact on Alberta prices. Italian implementation of Country-of-Origin Labeling (COOL) caused the country’s imports from Canada to all but disappear, the major factor in Durum declining more than 15 per cent from spring to fall, triggering the SPE product.
Other wheat prices went in the opposite direction this year due to global moisture deficits in most exporting nations/regions including Australia, the Black Sea Region, the European Union, Canada and others. A majority of insured wheat types, including Canada Prairie Spring and commercial-end-use Hard Red Spring triggered the VPB with more than 10 per cent price increases from spring to fall.
Barley and other feed grains entered the year with low carryover and strong prices that continued with low moisture conditions in Southern and Central Alberta as well as strong demand from the livestock sector. The crop triggered VPB with a 40 per cent increase throughout the year.
Low moisture conditions and demand for feed affected hay in a similar way, driving some very high prices in the southern and central regions of the province. The chance of spotting a hay truck heading south or east this year was high.
2019 promises to be another interesting and potentially volatile year with a surplus of market influencing geopolitical factors in play. Indian tariffs, U.S.-China relations, global weather and how trade agreements will play out are all still uncertain, making it even more difficult to predict the future of markets. If one thing is certain, it’s the value of dealing with and planning for risk and uncertainty. Another year to hope for the best and plan for the worst.
– Jesse Cole
On the livestock side this year, it was the tale of two commodities. Hogs had a rollercoaster year as trade disputes with the United States and outbreaks of African Swine Fever (ASF) in China and Europe roiled the market. Cattle herd sizes hit record levels this year as expansion leveled off, driving up prices on feed and buoying prices for calves.
In 2018, hog prices were dragged along for the ride as trade disputes heated up between USA and Mexico over steel and aluminum tariffs. Reciprocal retaliatory tariffs aimed at causing maximum political damage to American lawmakers focused on pork as a key commodity in the dispute. And, as the American market goes, so goes Canada: Canadian hog prices fell precipitously through the summer from local highs of $180/ckg in June to lows of $100/ckg in August – during a time of year when seasonal highs would normally be expected.
Meanwhile, parts of Eastern Europe and China were seeing early signs of outbreaks of ASF in their hog populations. While not posing a threat to humans, ASF can spread through entire herds, killing hogs at alarming rates if not properly contained. By October, outbreaks had further been observed in parts of Western Europe – with France going so far as to build a fence along its border with Belgium to contain wild boar migrations. Culls in China exceeded 200,000 head by the end of October, and with international demand being largely unchanged, American hog prices rebounded significantly as international supplies tightened. By the end of October, Canadian prices were back in the $140-150/ckg range.
Cattle had a much quieter, if no less interesting, story this year. Demand for beef continued to drive a strong cattle sector both in Canada and the United States, particularly south of the border. Bets on expansion last year seem to have paid off as prices stayed more or less stable through the early parts of the year and through the summer.
While avoiding the crosshairs of international trade disputes, the cattle market was largely driven by local and regional forces. Feedlots across Alberta completed bunk capacity expansions this year and spent the latter half of the year trying to get them filled. This drove demand for calves through the calf- run fall season and while feeder prices did see some seasonal decline in the latter part of the year, calf prices have stayed steady in a declining market. Concurrently, while they held on strong for most of the year, feeder prices seemed to finally be reacting to high feed costs and have dipped over the last part of the year.
Basis levels finish up the cattle story. Over the last few years, Canada’s finished cattle have been selling for premium prices compared to those south of the border. This finally changed this year, with American markets running hot and prices outpacing the Canadian market. With Alberta feedlot capacity at new highs and packer capacity largely unchanged, we shall see if this pushes more finished cattle south of the border in 2019.
WLPIP market information graphs can always be found on the WLPIP website at: https://www.wlpip.ca/market-information
More detail on prices for AFSC crops eligible for SPE and VPB can be found on the AFSC homepage: https://afsc.ca/wp-nfs/wp-content/uploads/2018/11/Fall-Prices-2018.pdf
– Jordan Wregget